Did you know India’s tax regime is one of the most complex in the Asia-Pacific region? Deloitte’s Annual Economic and Social Survey states that India’s tax regime is the second most complex, following China in Asia-Pacific.

You might have faced these complexities, understanding the new regime tax laws introduced in 2020. Moreover, its reformation in 2023’s union budget added new confusion. We’re here to help you navigate this new income tax regime.

The New Regime Tax System

Despite being the default, the new tax regime finds a lot of contempt. The government brought this optional tax rate system to lower tax rates and simplify taxation by limiting various exemptions.

In contrast to the old regime, taxpayers in the new income tax regime cannot claim many deductions and exemptions. Previously, taxpayers claimed deductions under LTA, HRA, 80C, and 80D. Naturally, the new regime lost its intent.

Hence, budget 2023 improvised the new regime tax policy to persuade more citizens to opt for it. It introduced certain adjustments.

Higher Tax Rebate Limit

While the previous taxable limit began at INR 5 lakhs, it is now increased to INR 7 lakhs. Hence, citizens earning up to INR 7 lakh need not income pay taxes.

Simpler Tax Slab Rates

As per the new regime, tax slab rates are lower and simpler. Find the comparison of the slab rates of the old and new income tax regimes.

Family Pension and Standard Deductions

Like the old, the new regime also includes a standard deduction of INR 50,000. Moreover, family pensioners are eligible for certain deductions.

Tips to Save Taxes Under the New Tax Regime

Before learning to save your taxes, know the significant exemptions within the new tax regime:

• Standard rent reduction
• Retrenchment compensation
• Retirement leave encashment
• Agricultural incomes
• Income from life insurance
• Death cum retirement benefits
• VRS proceeds of up to INR 5 lakhs
• Money from scholarships

Here are some tips to mindfully use the changes to optimise taxes:

1. Plan through wise investment options: PPF, ELSS, and NPS investments are eligible for tax deductions. This, in turn, can help you save taxes and gain better returns.
2. Get your hands on all tax deductions: From home and education loans to health insurance premiums, claim all available tax deductions. This can add to a lot of saving on taxable income.
3. Claim 80C rewards: PPF, NPS, ELSS, and some tax-saving FD schemes have deductions of up to INR 1.5 lakhs. Hence, plan your investments accordingly.
4. File tax returns on time: Filing tax returns within deadlines avoids penalties. You can opt for e-filing to ensure timely submissions.
5. Newbies opt for the New Regime: The income tax new regime suits recently salaried pupils without any housing loan or excess funds for investing in tax-saving facilities.
6. Opt out of the new regime if non-beneficial: With more significant deductions eligibility, the old regime may be more fitting to your income.

Conclusion

Despite the unpopularity of the new regime tax norms, they can be utilised optimally in some cases. With lowered tax slabs, easier processes, and lesser documentation, the new tax regime may suit some, especially newcomers.

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Frequently Asked Questions

1. When should I opt for a new tax regime?'

Taxpayers can opt for the new or old tax regime while filing their income tax returns.

2. Which is better old tax regime or the new tax regime?

The choice depends on personal income and other factors. Individuals are eligible for more deductions benefits under the old regime. Recent earners, individuals with lower incomes or investments, benefit from the new regime.